Bids for costs protection could lead to intrusions into privacy, say City solicitors

City solicitors have urged the Ministry of Justice (MoJ) to withdraw its consultation on costs protection in defamation and privacy claims because it does not deal with the central issue of how eligibility for protection will be assessed.

It also warned that an application for costs protection under the proposed scheme could in itself lead to “incursions on privacy”.

Full costs protection would be afforded to those who would face “severe financial hardship” if they had to pay the other side’s costs; partial protection would be given to those of “some means” who could pay something “without seriously affecting their overall financial position”; and there would be no QOCS for “very wealthy individuals or organisations”.

In its response, the litigation committee of the City of London Law Society said the consultation paper was premature.

It explained: “What constitutes severe financial hardship and how it is to be determined is not a mere point of detail but is at the heart of the scheme. Unless this is clear in the rules, the scheme will itself generate endless and costly satellite litigation as parties apply to the courts in order to work out how the rules should be applied in practice.

“There is also a real risk of inconsistency in approach and of a resulting lack of fairness (whether to the claimant or defendant).”

The consultation paper was open in not setting out any criteria as to how the court should assess severe financial hardship. “Without an understanding of these criteria, it is impracticable to address the questions raised by the consultation paper or to assess whether the scheme will work effectively and fairly in practice,” the committee said.

It raised a host of matters that it said needed to be considered, such as: should there be strict criteria or judicial discretion? If discretionary, how would consistency be achieved? If strictly financial, what should the limits be? Should they be the same as legal aid? Should the manner in which the applicant is financing the litigation be relevant? Should the costs of childcare be considered? Would it be reasonable to require the applicant to incur debt that they have the income to pay off over a period of time?

The committee pointed out that the “huge advantage” conferred by costs protection is likely to encourage many parties to apply for it and respondents to fight them intensely.

It warned: “Indeed, there is a serious risk that an application for costs protection will itself lead to incursions on privacy if a respondent does not accept at face value the applicant’s statement of the applicant’s assets and liabilities. Ifthe respondent wishes to check these matters – for example, whether the applicant’s lifestyle is consistent with the applicant’s description of his or her means – this will involve watching or otherwise investigating the applicant.”

This meant a new paper should be issued that sets out the options for determining severe financial hardship and assesses how they might operate in practice, the committee said. “Without that, any consideration of the questions in the consultation paper will be incomplete at best, and probably flawed.”

By contrast, the Civil Justice Council gave a much warmer welcome to the consultation in its response. It said costs protection would need to be “underpinned by some form of means test”, with guidelines to clarify the level of means applicable for each group of applicants.

It said: “Regard should be had of means banding in related fields, eg legal aid eligibility, any comparable case law decisions in other fields of law. It is anticipated that case law will in any event develop to provide definitions for each of the groupings”.

The MoJ has issued a call for evidence as part of the triennial review of the CJC, which is being undertaken by the Judicial Office. This will look at the continuing need for the functions and the form of the council. The review is also looking at the Family Justice Council. See here for more details.

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It’s perhaps not quite as divisive as Brexit, but the arguments surrounding the Civil Liability Act 2018 – addressing the compensation culture versus protecting access to justice – sit deep in the world of PI.